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Housing Bureau
Addressing Reform of the Government Housing Loan Corporation

Addressing Reform of the Government Housing Loan Corporation
Calls for reform of government-affiliated corporations Issues concerning the current mortgage market
Plan for reorganization and rationalization of government-affiliated corporations (Cabinet meeting decision of December 2001)

   The Government Housing Loan Corporation is to be abolished within five years. Securitization business will be carried out by a new independent administrative institution.
   Financing operations are being reduced step by step since FY 2002.
Final decisions will be made when an independent administrative institution is set up after taking into consideration whether private financing institutions are handling the matter smoothly.
   Supplies of private-sector, long-term, fixed-rate loans are at low levels regardless of the need for long-term, fixed-rate loans.
 
 ·  More than half of persons planning to acquire housing hope for a housing loan with a fixed rate over the whole life of the loan. (2004 The Government Housing Loan Corporation study)
 ·  Only 5% of all new private-sector housing loans have fixed rates for more than a ten-year period (as of the first half of FY 2004) (according to a 2004 MLIT study)
   The Government Housing Loan Corporation will be abolished on April 1, 2007, based on the plan for reorganization and rationalization of government-affiliated corporations, and a new independent administrative institution will be established to provide support for securitization (Housing Finance Services Agency). (Setup proposal was approved in a previous ordinary session of the Diet)
   Housing Finance Services will be managed independently with the goal of supporting and supplementing private-sector financing institutions.
   Financing in the private sector will be limited to difficult areas, and main operations will be switched to support for securitization.

 Operations to performed by Housing Finance Services Agency

The mortgage support organization, managed independently, will carry out the following operations with the goal of supporting and supplementing private-sector financing institutions.
1. Support for securitization
    Support for provision of private-sector, long-term, fixed-rate housing loans
2. Financing insurance
    Encouragement for a smooth supply of private-sector loans led by medium-sized or small financial institutions
3. Provision of housing information
    To supply housing loan and housing-related information so that the consumer can select the best loan
4. Financing operations
    This area is important in terms of policies, however, it is disaster-related area, and the private sector has difficulty in supplying financing here so it is limited to the revitalization of city housing.
  With respect to the handling of financing designed for individuals, final decisions will be made after taking into account the status of securitization loans and the course of operations of private-sector financing institutions, until a new independent administrative institution has been set up based on a plan for the reorganization and rationalization of government-affiliated corporations.
5. Ensuring and guiding housing quality
  Regarding earthquake proofing, energy saving, and barrier-free construction, housing quality will be ensured and guided by taking advantage of securitized loans.
6. Management of past claims
  Past claims of The Government Housing Loan Corporation will be managed appropriately by establishing a special account separate from new operations. The new account will include liabilities for guarantees of assurance associations.

 Envisioned reform of the mortgage market

 ·  The main operations of Housing Finance Service Agency will be to provide support for securitization to allow private-sector financing institutions to supply long-term, fixed-rate loans.
 ·  Foundations for a stable supply of long-term, fixed rate loans will be established by shifting risks associated with long-term, fixed rate loans to a broad cross-section of investors.
 ·  Except for cases of responding to disasters, all funding for Housing Finance Services Agency will be procured in the market (in principle via the application of fiscal investment and loan program funds for direct financing).

Envisioned reform of the mortgage market
Enlargement is here.   

 Mechanism of operations to support securitization

  Starting October 2003, a mechanism was constructed to support the supply of private-sector long-term, fixed-rate housing loans by launching operations to support securitization (acquisition-type) at the Housing Loan Corporation. Assurance-type operations were launched in October 2004.
   Measures to enlarge such operations will be aggressively conducted in the future as a pillar of operations of the mortgage support organization.

Scheme of securitization support operations (Agency conduit model)
[Scheme of securitization support operations (Agency conduit model)]
* MBS is the abbreviation of "Mortgage Backed Securities"
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